week one home work

oi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 138,000 kilometers during a year, the average operating cost is 14.8 cents per kilometer. If a truck is driven only 92,000 kilometers during a year, the average operating cost increases to 18.6 cents per kilometer.  

Required:

1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of the truck operation. (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places and Fixed cost answer to nearest whole dollar amount.)

 

 

2. Express the variable and fixed costs in the form Y = a + bX. (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places.)

        

 

3. If a truck were driven 115,000 kilometers during a year, what total cost would you expect to be incurred? (Do not round intermediate calculations.)

 

The Dorilane Company specializes in producing a set of wood patio furniture consisting of a table and four chairs. The set enjoys great popularity, and the company has ample orders to keep production going at its full capacity of 4,000 sets per year. Annual cost data at full capacity follow:

 

Direct labor	$	90,000
Advertising	$	102,000
Factory supervision	$	67,000
Property taxes, factory building	$	15,000
Sales commissions	$	57,000
Insurance, factory	$	8,000
Depreciation, administrative office equipment	$	1,000
Lease cost, factory equipment	$	16,000
Indirect materials, factory	$	19,000
Depreciation, factory building	$	107,000
Administrative office supplies (billing)	$	5,000
Administrative office salaries	$	108,000
Direct materials used (wood, bolts, etc.)	$	428,000
Utilities, factory	$	42,000

 

Required:

1. Enter the dollar amount of each cost item under the appropriate headings. Note that each cost item is classified in two ways: first, as variable or fixed with respect to the number of units produced and sold; and second, as a selling and administrative cost or a product cost. (If the item is a product cost, it should also be classified as either direct or indirect.) (If your answer is zero, leave the cell blank.)

 

   

2. Compute the average product cost of one patio set. (Round your answer to nearest whole dollar.)

 

   

3. Assume that production drops to only 1,000 sets annually. Would you expect the average product cost per set to increase, decrease, or remain unchanged?

 

	Increase
	Decrease
	Remain unchanged

Last month when Holiday Creations, Inc., sold 39,000 units, total sales were $300,000, total variable expenses were $219,000, and fixed expenses were $37,200.

 

Required:

1. What is the company’s contribution margin (CM) ratio

Contribution margin ratio______ %

2. Estimate the change in the company’s net operating income if it were to increase its total sales by $2,600.

Estimated change in net operating income _______

Morton Company’s contribution format income statement for last month is given below:

 

Sales (45,000 units × $23 per unit)	$	1,035,000
Variable expenses		724,500
Contribution margin		310,500
Fixed expenses		248,400
Net operating income	$	62,100

 

The industry in which Morton Company operates is quite sensitive to cyclical movements in the economy. Thus, profits vary considerably from year to year according to general economic conditions. The company has a large amount of unused capacity and is studying ways of improving profits.

 

Required:

1. New equipment has come onto the market that would allow Morton Company to automate a portion of its operations. Variable expenses would be reduced by $6.90 per unit. However, fixed expenses would increase to a total of $558,900 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased. (Round your "Per unit" answers to 2 decimal places.)

2.Refer to the income statements in (1) above. For both present operations and the proposed new operations, compute

 

a. The degree of operating leverage.

Degree of operating leverage Present _______ Proposed_______

b. The break-even point in dollar sales. Present _______ Proposed_______

\\\

The margin of safety in both dollar and percentage terms.

Present Proposed

Margin of safety in dollar sales _____ ______

Margin of safety in percentage ______% ___%

3. Refer again to the data in (1) above. As a manager, what factor would be paramount in your mind in deciding whether to purchase the new equipment? (Assume that enough funds are available to make the purchase.)

 

	Performance of peers in the indstry
	Reserves and surplus of the company
	Stock level maintained
	Cyclical movements in the economy

 

4. Refer to the original data. Rather than purchase new equipment, the marketing manager argues that the company’s marketing strategy should be changed. Rather than pay sales commissions, which are currently included in variable expenses, the company would pay salespersons fixed salaries and would invest heavily in advertising. The marketing manager claims this new approach would increase unit sales by 50% without any change in selling price; the company’s new monthly fixed expenses would be $310,500, and its net operating income would increase by 25%. Compute the break-even point in dollar sales for the company under the new marketing strategy.

 

New break even point in dollar sales ________

A company assigns overhead cost to completed jobs on the basis of 119% of direct labor cost. The job cost sheet for Job 413 shows that $26,305 in direct materials has been used on the job and that $10,500 in direct labor cost has been incurred. A total of 1,700 units were produced in Job 413.

 

Required:

a. What is the total manufacturing cost assigned to Job 413?

Total manufacturing cost _____

b. What is the unit product cost for Job 413?

Unit product cost _____

Savallas Company is highly automated and uses computers to control manufacturing operations. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of computer-hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year:      

Computer-hours		90,000
Fixed manufacturing overhead cost	$	1,276,000
Variable manufacturing overhead per computer-hour	$	3.30

During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the company’s warehouse. The company’s cost records revealed the following actual cost and operating data for the year:

   

Computer-hours		50,000
Manufacturing overhead cost	$	944,000
Inventories at year-end:
Raw materials	$	410,000
Work in process	$	120,000
Finished goods	$	1,040,000
Cost of goods sold	$	2,740,000

 

Required:  

1. Compute the company’s predetermined overhead rate for the year. (Round predetermined overhead rate to 2 decimal places.)

 

Overhead rate___ per computer hour

2. Compute the underapplied or overapplied overhead for the year. (Round predetermined overhead rate to 2 decimal places.)

_________ ______________